How MTD works and how to comply with it

Key facts:

To comply with MTD a business or its agent (typically their accountant) must keep their records electronically. In other words, when a tax return of any sort is made to HMRC, it must be possible to look at the records that justify the tax return and those records must be held on a computer and there must be an "electronic link" from the records through to the VAT return.

At the moment, this just applies to VAT returns.

You can comply with MTD one of three ways:

• Pass information on sales and costs regularly to your accountant. They then act as your agent, recording all of the information in their own accounting system and perform the submissions to HMRC on your behalf.
• Record all your sales and costs in a spreadsheet where the VAT return is calculated. Then go through some special “bridging software” to HMRC.
• Use your own system from a third party that interfaces with MTD. Capture all sales and supplier invoices in the system. Then submit the VAT return electronically to HMRC from there.